Two economic reports indicated Friday that the U.S. economy continued to race ahead at both the consumer level and the manufacturing level in recent months, providing more evidence that five interest rate increases over the last 10 months have had little effect on the economy.

American

consumers' spending

rose 1%, more than twice the 0.4% rate of their income growth in February, providing another sign that the supercharged U.S. economic growth is being propped up by Americans' tendency to spend more than they earn through salaries.

The

Commerce Department

said the U.S. savings rate, the amount of income left after spending, fell to 0.8% in February -- its lowest level since the government started keeping records on savings rates in 1959.

Alternative forms of income, such as stock gains and increases in home prices, are not factored into the savings rate, but economists say a low savings rate is still a worrisome sign that consumers are still willing to spend more than their income allows them.

Meanwhile, a key measure of March manufacturing activity in the industry-heavy Chicago area showed that factories were busy with higher production rates, even as rising costs for energy and raw materials continued to accelerate. The

Chicago Purchasing Manager's Survey

rose to 57.4 in March versus 56.7 in February. (Numbers above 50 denote economic growth in the survey).

The two reports reflect a backdrop of several other strong economic reports that have shown that the housing market, retail spending, broad manufacturing activity and abnormally low unemployment continue to propel the U.S. economy at a solid pace.

Countering the strength seen in the two economic reports, another report Friday showed that factory orders slipped 0.8% in February -- the second straight month of declines. But economists largely brushed off the data because the bulk of declines came in the volatile transportation sector, which reflected a drop in airplane orders.

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These signs of economic strength in the first quarter are leading economists to believe that U.S. GDP -- a broad measure of growth, which surged to a staggering 7.3% annual rate during fourth quarter of 1999 -- might remain at levels far above the 3%-4% growth rate

Federal Reserve

policy makers feel more comfortable with.

Joe Lavorgna, senior U.S. economist at

Deutsche Bank

, said the first-quarter data so far pointed to a 5.8% annualized GDP growth rate. But he said any first-quarter drag on GDP will be concentrated into a few predictable areas.

"There is little doubt that domestic demand this quarter is as strong as it was last quarter," Lavorgna said. He added that GDP would likely slow a little bit because growth in business inventories eased in the first quarter and the U.S. trade deficit continued to widen.

The widening trade deficit comes with its own set of problems. The U.S.' heavy reliance on foreign goods makes the nation dependent on the inflows of foreign capital through investments. As U.S. markets continue to chalk up heavy returns, foreigners have been eager investors in U.S. stocks and bonds, but any temperance of foreign enthusiasm could spell trouble in the form of a weaker dollar and inflation.

In an attempt to quell the growth in domestic demand, the Fed has raised short-term interest rates five times, by a total of 1.25 percentage points, since last June. The federal funds rate, the interest that banks charge each other for overnight loans, now stands at 6%.

With its most recent rate increase on March 21, the Fed issued a statement saying it remained concerned that "increases in demand will continue to exceed the growth in potential supply, which could foster inflationary imbalances that would undermine the economy's record expansion."

Joel Naroff, president of

Narroff Economic Advisors

, says it was still uncertain how much further the Fed will need to slow the economy to a more sustainable pace. "This economy is still red hot and the Fed is going to do more, maybe a lot more, to cool the flames," he said.